31 Ekim 2011 Pazartesi

Arrighi's The Long Twentieth Century and Hilferding's Finance Capital (A short comparison)

Arrighi's The Long Twentieth Century which is also the name of his research, is the last circle of the chain of phases in the world capitalist economy. As yet to this circle, he specifies the combination of the European world capitalist economy within both the world system with the long centuries and partly growing with getting up on the phases. These centuries and the phases get up on each other because for his thesis, institutions and structures of each accumulation cycles predominate the world capitalist economy at the time of the former financial expansion (CM') period. In general, he identifies four such cycles, each containing a long century:

- a Genoese-Iberian cycle (15th and early 17th century)

- a Dutch cycle ( late 16th to late 18th century)

- a British cycle ( mid-18th century to early 20th century)

- a United States cycle (late 19th to current century)

Each accumulation cycle is defined by the particular complex of governmental and business agencies that led the world capitalist system towards first the material expansion (MC: money capital (M) evokes an increasing extent of commodities such as labor power and natural resources) then the financial expansion (CM': an expanded extent of money capital (M') sets itself free from its commodity form and accumulation proceeds through financial deals (MM')) (Arrighi, 2005: 86).He concludes that these two epochs constitute a systematic cycle of accumulation (MCM'). Consecutive systematic cycles of accumulation overlap with one another at their beginnings and ends because epochs of financial expansion have not only been the ''autumn'' of major developments of world capitalism but also have been the epochs of new leading governmental-business complex emerged (Arrighi, 2005: 87). For him, material expansion occurs because of the emergence of a particular bloc of governmetal and business agencies capable of leading system towards a new spatial fix that creates the conditions for wider and deeper divisions of labor. In addition, he continues that the reason to transition from material to financial period causes from the ever-growing mass of profits in trade and production and then results with the reducing profit margins. In other words, he points out the increasing competition for trade and production. The prospects of recouping the capital invested in trade and production decrease, and capital agencies tend to keep in liquid form a larger proportion of their incoming cash flows so the period is thus set for the change of phase from material to financial expansion (Arrighi, 2005: 87). Moreover, particularly that point indicates the starting place of crisis and change hands of the hegemony of world capitalist system and also the new starting period of material expansion for another country. This financial expansion also tends to deepen rather than to solve the underlying accumulation crisis. They thereby exacerbate economic competition, social conflicts and interstate rivalries to levels that it beyond the incumbent centres powers to control (Arrighi, 2005: 88). In this brief part, the main characteristic of time profil of historial capitalism (Wallerstein) is being the same structure for both long centuries. More detailed, both expansions, material and financial, embrace three different periods:

(1) the first financial expansion period that consists the new accumulation regime within the former accumulation regime with their expansions and contradictions.

(2) the development period of the new accumulation regime with its institutions in the world system and expansions within their material concepts.

(3) The second financial expansion period that its contradictions within the current accumulation regime and formation of the other rival and alternative regime which is going to be taken place of its regime.

For example, in an American systematic cycle of accumulation, these three phases are:

1870-1930: an ongoing process from the indicator crisis to decisive crisis of an England accumulation period

1930-1970: an ongoing process from England decisive crisis to the American indicator crisis

1970-now: an ongoing process from the indicator crisis to decisive crisis of an American accumulation period

On the other hand, Arrighi points out the other important factor: Diminishing time period of hegemonic power. For Genoese, it is appproximately 220 years; for Dutch, it is 180; for England, it is 130 and for America, it is 100 years. Even the periods have diminished, the scale of the institutions and the organizational complexity has ceaseless increased.

(1) Republic of Genoese: It had a city state that small as scale and simple as institutional and a spot of military power. It also had a profound social division. It was a slight relations with the major territories. However its power was coming from the importance of being a nation and apprehending the link of trade and finance to cope with the major territories. Finally, it controlled the situtation of the liquid capital successfully.

(2) Dutch: It was a type of hybrid organization as an increasing characteristics of nation state compounding with the properties of the city state. Furthermore, it was an organization which gave its independence from Spain and converted the sea power and the territorial empire to a profitable trade position.

(3) England: It was not only a developed nation state and a more complex structure but also a state which established a power on trade as world hegemon with its managerial groups. Thanks to this, it was a state that kept under control of the liquid capital universal.

(4) United States: It conveys more than the developed nation state. Furthermore, it is a powerful military-industrial synthesis on the scale of continent and also of world-wide. It provides to internalize the cost of transaction all but the internalizing of cost of protection and production with its territorial hegemony, isolated position and power of their natural resources.

In the Arrighi's concept, Marx's general formula of capital is not commented as a mere example for an individual investment logic but also commented as a characterization of repeated historical capitalism for the world system. However, in that point, there is a visible abstraction which obscures an inner alternation dynamics of the capital and conceals the interaction with other types of capital and the production cycle in the creation phase of the surplus value. In other words, it postpones the value of labor power fact. As a part of the competition to understand the concept of the profit, it makes difficult to analyze the relationship among the profit and surplus value and its historical alternation at the same time. Whereas Hilferding's point of view for the creation of capital process at the time of late 19th century when the concentration of the capital is more complex, is much more different from Arrighi's thesis. The process of a monopolization in the midst of capital circulation domination is considerably different from the frame of capital in the historical capitalism, however, it has also comprehensive quality to all capital creation extents. It can be also understood by his examples of the differentiations on the C/V and an increasing rate of the organic composition of capital. It is also a net indicator to analyze the alteration of the creation techniques of the surplus value and the logic of the labor power in an ever-differing form of the world capitalist development process.

The second difference between them consists of the Arrighi's expression in a point of controlling the hegemonic power to the world capitalist relations solely by the financial aspect which is also enclosed the change of hands of the accumulation regimes in a financial expansion part. The theoric base of the MM' phase presents this to us clearly. However, the different concept which gets out in Hilferding's presentation, is much contrast and inclusive according to Arrighi. First of all, the fact that Hilferding does not conduct his theories upon the hegemonic power in the development process of the world capitalism, is much more important to ascertain the alternation of the composition and the structure of the entire capital. Of course, I should add that Hilferding takes some countries as a base however, in that situation the actual consideration is getting the whole capital to analyze its layers. Secondly, the other point is that in the phase of the developing financial expansion with its growing institutions such as large banks and financial intermediaries has a close integration within the production sector. As a description of finance capital is, in a strict sense, the transformation of competitive and pluralistic liberal capitalism into monopolistic finance capital. But in a more deeper sense, it refers to the domination and close integration of financial capital as a bank capital on the industrial capital. It can be in a three different ways which are increasing rate of joint-stock company, personal connections in an establishment of corporate management and by financial transactions. Namely, he differs from Arrighi with these two points but mainly with the second one, in the definition of the finance capital. Arrighi is pointed this more in his work, ''The Long Twentieth Century'': withdrawal of the European banker of Dutch from the trade and industry in the financial expansion cycle; its continuity by the England as a money capital surplus at the end of the industrial revolution attack and equally the continuity of this situation in the U.S. systematic cycle of financial expansion starting at the end of 1970s as isolated of industry by the finance sector. As such, Hilferding contrast to Arrighi with its comprehensive quality of monopolization and cartelization both to two different sector (but by the hegemony of finance) and with its evaluation of liquid capital world-wide. Finally, Hilferding stresses on the diminishing effect on competition of monopolization and cartelization but on the other hand, Arrighi points that the increasing rate of competition at the time of transition from the material expansion to financial expansion cycle. He also contrasts with the Hilferding by his argument which is the severe competition on the liquid capital in the financial expansion cycle.

Thirdly, the other different point is that the starting point of the ''finance capital'' concept, namely, Arrighi assumes that the finance capital shows itself in the previous financial expansion cycles following Braudel in a sense in opposition to the starting point of late 19th century which is espoused by Hilferding. At this juncture, the difference starts. According to me, Arrighi's assertion can be predicated reclamation as not the finance capital but as financial capital (acquisition money from money). Because the concept of finance capital indicates the elaboration period of the capitalist mode of production according to Hilferding. The period of finance capital becomes important by the extension of capitalist production to the whole world scale and by the dominance on the industrial capital. These points enclose just a small-scale companies and low-frequency liquid capital for both expansion cycles in the Genoese and Dutch accumulation regimes. In summary, the feudal relations of production did not allow to the formation term of finance capital for both regimes. However, the financial capital, in other words the process of acquisition money from money, is always existed for capitalist class.

In conclusion, Arrighi assumes that the concept of nation-state is disappeared with the development of the accumulation regimes. However, even though Hilferding does not add the concept of the nation-state to his theories, he highlights the importance and continuity of this upon the capital. Of course, the nation-state concept implies a different meaning from the period of the England accumulation cycle however, at the same time, in a general sense, the nation-state concept is still continued the impact on the capital. We briefly order it with these four factors:

(1) National currency: Every nations have a national currency intrinsically and from this beings there is also a balance of payments mechanism. The being of the national currency, it gives specifics to the connection of the world economy of the nation state. These specifics finds its expression in the exchange rate as a price.

(2) Fiscal system: Every nations has a public budget as an expression with incomes and expenditures, depending on this they have also taxation system and central bank.

(3) The class relations regime

(4) General economic structure

23 Ekim 2011 Pazar

The Dominance of Financialization over the era of Nonfinancial Sector

Financialization, as it can be assumed one of the most current debated phenomenon of the economic discipline, has begun to lose out its gravity in that global crisis. However, the basic question in my opinion is that how come that the prominence of the finance has mislaid its power, from the period of 1980s to 2010s, especially in this economic turbulence. Of course, so many social scientists accuse the financial sector for causing to that crisis but once to understand this, we can primarily conceive the concept of financialization and what it refers to. Thus, the historical process and different perspectives are going to give us so many substantial informations. Before the beginning of these perspectives, financialization action implies some of the dimensions and characteristics. Briefly, we can categorize some of these just as economic factors below:

- The diminishing role of the government in an economic process
- Deregulation of free markets and privatization of public goods
- The abolishment of the borders for capital
- Free of the interest rates
- Incentive to the international financial connections and incentive to increase for technology and innovation for financial sector actors

These are some of the basic characteristics, particularly from the period of 1980s of Reagan and Thatcher's applications for the hole economic system to nowadays. Apart from the characteristics, there are so many important perspectives within the historical process which has laid different definitions to what is financialization. I am going to identify and discuss the fact within these bounds.

First of all, Greta Krippner gives us a comprehensive acquirements in a context of history of the financialization with pros and cons of the different meanings. For Krippner herself, the fact of finance indicates to the ''pattern of accumulation in which profit making occurs increasingly through channels rather than through trade and commodity production'' (Krippner, 2005). Moreover, she also gives weight to her definition by this argument ''financialization refers to the growing importance of financial activities as a source of profits in the economy'' (Krippner, 2011). She points that the financial sector is not employment-intensive and the outputs of this sector do not appear so clearly in an economical statistics. Simply thanks to these three but close related informations, we can apprehend to be sidelined of the real sector and overtaking it expressly. But is it suffice to understand the fact? Because of this reason, she broadens their financial viewpoint by analyzing it into three industries which are manufacturing, FIRE and services by questioning where profits are generated in the context of U.S. economic structure. She argues from her datas that services sector has increased its functions as a structural in lieu of the manufacturing. This point also espouses by the differences among the portfolio income (total earnings gathering by interest, dividends, realized capital gains) and corporate cash flow (profits plus depreciation allowances) to show the financialization process. From the beginning of 1980, the results prove that the nonfinancial firms corporate cash flow declines below to the portfolio income. Moreover, the dispersion of rate of profits among nonfinancial and financial sectors gives us some important clues about the way of financialization. For Krippner, besides the increasing weight of financial activities in generating revenue streams for nonfinancial firms, she also points mainly that the financial sector itself has become a central heart of accumulation for capital. From the beginning of 1950s, the firms difficulties related with the liberalization of depreciation allowances has made a downward effect on the corporate cash flows against the portfolio income. So, depreciation allowances were not evenly distributed, but would be highest for firms in capital-intensive industries, such as manufacturing (Krippner, 2011). I think that also because of this downward sloping rates, especially in leading sector which was a manufacturing, show a transference of capital from nonfinancial to financial firms. Hence, it mentions the increasing dominance over the nonfinancial firms and was being a central point to enhance to start again the previous levels of productivity. In conclusion, albeit her article stresses on the centric of the U.S., the general image after the 1980s in worldwide that the aspects of her for financialization ''pattern of accumulation in which profit making occurs increasingly through financial channels rather than through trade and commodity production'' somewhat protects up to dateness. Alongside I find her financialization refers, it can be sticked up for the Epstein and Palley's financialization principles.

Epstein defines that ''financialization refers to the increasing importance of financial markets, financial motives, financial institutions, and financial elites in the operation of the economy and its growing institutions, both at the national and international level'' (Epstein, 2011). The common point of these writers are the effects of the system on growth rates, fragility and unsustainability and its dimensions, income distribution, political and economic policy and commonly the macroeconomic changes. Refer to the Palley, financialization has transformed the functioning of the economic system for both of the micro and macro components. He specifies its principal impacts are:

(1) Elevate significance of the financial sector relative to the real sector

(2) Transfer income from the real sector to the financial sector

(3) Contribute to increased income inequality and wage stagnation (Palley, 2007)

These are, especially the first and second impacts, similar what Krippner showed in an evidence among the dispersion between industries; manufacturing, FIRE and services. James Crotty adds a similar point of view ''for the United States, the profits of financial institutions rose dramatically relative to the profits of non-financial corporations after 1984'' (Crotty, 1990). Moreover, Dumenil and Levy espouses the U.S. example for the France case that to the case of France, he indicates that the sources of increasing profit is the doubled of real interest rate between 1970 and 1990. For the third principal impacts, the Palley's countenance by the Epstein and Jadayev that they shows from the investigation of OECD countries data that the shape of national income accruing to financial institutions and holders of financial wealth. Also they add that the structural shifts of dramatic proportions took place in a number of countries that led to significant increases in financial transactions, real interest rates, the profitability of financial firms, and finally the distribution of income accruing mainly by the financial sectors, offers another similar meaning and evidence like in Krippner's viewpoint for her sectoral shares among financial and nonfinancial sectors. In addition to the Palley's agreement for the finacial sector's fragility and unsustainability, Dumenil and Levy suggests the same agreement that they argue finance benefits handsomely from the same process that create economic crises. Furthermore, these complications foster by the economic and political policies as Epstein identifies that ''important government policies that help to account for these significant increases in rentier income in OECD countries'' (Epstein, 2001). Furthermore, Palley refers that this unsustainability marked by more and more increasing household debt-income ratios and corporate debt ratios. For example, the defining characteristic of financialization in the U.S., the total debt rose from 140 to 328.6 percent of GDP (Palley, 2007). However, the period also shows that finacial sector debt rose much more than nonfinancial sector as 9.7 to 31.5 percent of total debt (Palley, 2007). These results, on the other hand, has somewhat adequate to be a similar with the Krippner and her financialization analysis. There is also another important evidence that is about the increasing rate of transference of resources from financial to nonfinancial sectors. It emanates from two different sources: usurious rise in household debt ratio/GDP and nonfinancial debt ratio/GDP. Between 1973 to 2005, firstly, the household debt ratio speed rose sharply by %45.2 to %94.0 respectively. Secondly, the other nonfinancial debt ratio speed rose by %30.3 to %42.4 (Palley, 2007). It is clear that the household debt ratio rose more than than the speed of nonfinancial debt ratio. However, in that situation, the main point is that the resource transference from household and nonfinancial sector to financial sector, is very obvious. Apart from the features of the fragility and unsustainability of the economy as a whole, there is also another important effects of financialization on the annual per capita income growth rates. Once again from the Palley's work, there is an important datas that shows from different industrialized countries such as U.S., Japan, Germany, France, Italy, U.K. and Canada among the 1960-2005 years, the general trend is a downward sloping in both countries for per capita income growth rates. That's why, it also supports the capital transference to financial sector. As a result, we can collect of these definitions an data evaluations into pot what Palley also summarizes:

(1) a slight shift in income toward capital ( it can be commented as the resource transfer from households and nonfinancial sector to financial sector)

(2) a change in the composition of payments to capital that has increased the interest share ( it can be assumed as a change of composition of growth rate of income shares)

(3) an increase in the financial sector's share of total profits (Palley, 2007) (finally, it can be pointed to the increasing hegemony of financial sector over real sector).

Nevertheless of the fundamental definitions and characteristics to seize to the financialization in the concept of systematical changes from real sector to financial sector in writings of Krippner, Epstein and Palley, I think that there are also another considerable and complementary observations to apprehend the context of financialization. Ronald Dore who wrote the Financialization of the Global Economy, specifies that financialization is being dominance over the real economy which is in itself a phenomenon that needs examining. In his article he traces ''the source of this dominance not just to the increasingly leveraged and increasingly incomprehensive forms of intermediation between savers those in the real economy who need credit and insurance, but also to the increasingly universal doctrine that maximizing ''shareholder value'' is the sole reason of the firm and the promotion by governments of an ''equity culture''. Some of the social consequences of financialization are exacerbating inequalities, greater security, misdirection of talent, and the erosion of trust'' (Dore, 2008). Even though his argument of financialization is somewhat different point of view but in my opinion it is also contributory to the arguments of systematic changes for financialization of Krippner, Epstein and particularly of Palley. When we approach to the case of the increasing dominance of financial sector over the real sector, his comments and method of approach to this issue is very advisable such as he denotes ''the increasing dominance of the finance industry in the sum total of economic activity, of financial controllers in the management of corporations, of financial assets among total assets, of marketised securities and particularly equities among financial assets, of stock market as a market for corporate control strategies, and of fluctuations in the stock market as a determinant of business cycles'' (Dore, 2002). Here as a footnote that it gives us another perspective to analyze in that way which is the increasing rate of impact on corporate government because of the finance triumph on real sector. Moreover, Stockhammer's diagnosis has a supportive quality to the dominance factor of finance: ''financialization is used to encompass phenomena as diverse as shareholder value orientation, increasing household debt, changes in attitudes of individuals, increasing incomes from financial activities, increasing frequency of financial crises, and increasing international capital mobility'' (Stockhammer, 2010). Finally, Kevin Phillips, in his 2006 book: American Theocracy, comments on the financialization term which is corroborative approach that it is a process whereby financial services, broadly construed, take over the dominant economic, cultural, and political role in an economy as a whole.

In a conclusion, both articles from two different perspectives of changes, systematic and corporate weighted, has an important quality to support each other. However, there is another prominent approach to use the financialization is Arrighi who specifies long waves of economic development in global capitalism that involve hegemonic and geographic shifts. He assumes that upward movement in an economy is indicated by the increasing rate of manufacturing and trade activity; however, in the downward movement, the financialization process is occured. Although, it has a broad explanation about financial process but also captures the real expansion for nations in a history of capitalism, as a subjective I prefered to use Epstein, Krippner and Palley's works together contributing of Dore, Stockhammer and Phillips' arguments about the financialization for analyzing size and profility of financial markets, income distribution among two sectors, total debt rates in the economy and its shares, the falling out of the hegemony of financial sector over real sector and finally the changing process in decision-making of corporate governance.




Bibliograhy:
Crotty, J; Structural Causes of the Global Financial Crisis: A Critical Assessment of the ''New Financial Architecture'', Cambridge Journal of Economics (2009), 33, pp.563-580.

Dore, R; Financialization of the Global Economy, ICC (2008), 17(6), pp.1097-1112.

Epstein, G.A.; Introduction: Financialization and the World Economy, Political Economy Research Institute (2005), pp.1-16.

Krippner, G.R.; Capitalizing on Crisis: The Political Origins of the Rise of Finance, 1st ed., Harvard University Press, 2011.

Krippner, G.R.; The Financialization of the American Economy, Socio-Economic Review (2005)3, pp.173-208.

Orhangazi, O.; Financialization and the U.S. Economy, Edward Elgar Publishing, 2008.

Palley, T.I.; Financialization: What It Is and Why It Matters, The Levy Economics Institute and Economics for Democratic and Open Societies, Working Paper No:525, 2007

Phillips, K.; American Theocracy, 2006.

Stockhammer, E.; Financialization and the Global Economy, Political Economy Research Institute (2010), No:240.